US to overtake Saudi Arabia as top oil producer, says IEA

A shale oil boom means US production will pass that of Saudi Arabia by 2020, the IEA says, in a radical shift that could greatly transform energy supplies and geopolitics. The assessment is in stark contrast with last year, when the agency envisioned Russia and Saudi Arabia vying for the top position.

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By BENOIT FAUCON and SARAH KENT

LONDON -- A shale oil boom
means the US will overtake Saudi Arabia as the world's largest
oil producer by 2020, a radical shift that could profoundly
transform not just the world's energy supplies, but also its
geopolitics, the International Energy Agency said Monday.

In its closely watched annual World Energy Outlook, the IEA,
which advises industrialized nations on their energy policies,
said the global energy map "is being redrawn by the resurgence
in oil and gas production in the United States."

The assessment is in stark contrast with last year, when it
envisioned Russia and Saudi Arabia vying for the top
position.

"By around 2020, the United States is projected to become the largest
global oil producer" and to overtake Saudi Arabia for a time,
the agency said. "The result is a continued fall in US oil
imports [currently at 20% of its needs] to the extent that
North America becomes a net oil exporter around 2030."

This major shift will be driven primarily by the
faster-than-expected development of hydrocarbon resources locked in shale and
other tight rock formations that have just started to be
unlocked by a new combination of two technologies: hydraulic
fracturing and horizontal drilling.

Within a decade, the IEA forecasts US oil imports will fall
by more than half, to just 4 million bpd from 10 million bpd
currently. Much of this decline will be due to higher domestic
production, but efforts to improve energy efficiency in the
transport sector will also prove significant, the IEA said.

The IEA's conclusions are partly backed by the Organization
of the Petroleum Exporting Countries, which last week
acknowledged for the first time that shale oil would
significantly diminish its share of the US market.

OPEC said the US would import less than 2 million barrels a
day in 2035, almost three-quarters less than it does today.

That's not to say OPEC's role will be marginalized globally.
The organization's share of global production will increase to
50% in 2035 from 42% today, with much of it going to Asia,
according to the IEA.

The IEA hinted that newly found US energy independence could
redefine military alliances, with Asian nations replacing the
United States in securing oil shipping lanes from the Persian
Gulf.

According to the IEA, the US need for oil imports from the
Middle East will fall to almost zero in the next 10 years,
while almost 90% of Middle Eastern oil exports will go to Asia
by 2035, creating a new trade axis.

"Asian countries should have much greater interest in the
stability and security of their suppliers in the Middle East,"
said Richard Jones, deputy executive director at the IEA.

Some in the US are already questioning the reasons for
keeping US warships in the Persian Gulf. "It's insane that we
have the Fifth Fleet of the US Navy tied up there to protect
oil that ends up in China and Europe," T. Boone Pickens, CEO of
energy-focused hedge fund BP Capital Management, was quoted as
saying last week in US magazine Parade.

The IEA said, however, that US primacy in world oil
production could prove short-lived.

"If no new [US] resources are discovered and if the [oil]
prices are not as high as today, then we may see Saudi Arabia
coming back as the first producer again," said the IEA's chief
economist, Fatih Birol.

The IEA also warned that the emergence of shale gas as a
game changer in global energy has a downside risk, contributing
to increased competition for water resources needed for energy
projects.

Shale oil and gas are extracted by pumping water, sand and
chemicals into the ground at high pressure to crack rocks open,
a process known as hydraulic fracturing, or "fracking." But the
intensive use of water, "will increasingly impose additional
costs," and could "threaten the viability of projects" for shale oil and gas, and
also biofuels, the agency said.

Dow Jones Newswires

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